Inspirational Retailing: How to Survive in a Wal-Mart World

Discussion
May 05, 2004
George Anderson

By John Ruf


The Wal-Mart juggernaut has been a wake-up call for most retailers. In a recent survey
of retailers, the New England Consulting Group (NECG) found that most retailers are obsessed with how to survive in a Wal-Mart world.


We all know that retailing is being revolutionized as Wal-Mart steadily grows and evolves into new formats, while focusing on dominating one category after another. Complicating matters even more for traditional retailers are new formats such as “dollar” stores and online retailers such as e-Bay and Amazon.com. We, however, believe retailers are more threatened by their failure to recognize consumers are looking for an inspirational shopping experience.


The new “inspired” shopper is continually looking for a more satisfying shopping experience. Turn satisfying into inspiring and they will willingly switch to another store whether that be online or off.


Home Depot built a retailing empire by inspiring a new wave of DIYers to take risks they never would have imagined. And now, their new competition is not Wal-Mart but Lowe’s, who has taken inspirational retailing one step further. They have created a “holistic” store in that shoppers can buy almost anything even if the store doesn’t carry it. Consumers simply go to special order kiosks in many departments to buy online or by phone.


Costco’s strategy is to “inspire” the bargain hunter in many of us, which is why Wal-Mart fears them most.


Most retailers today think in terms of traditional destination retailing that suggests focusing on some combination of location, assortment and/or price.


A recent MSI study, however, proves these three factors alone are no longer what drives channel preferences for most consumers. In fact, in all NECG consumer research, we are seeing a complete metamorphosis of consumer behavior. Consumers today are on the hunt for the next best shopping experience and become “loyal” to “inspirational” retail destination.


Therefore, we believe the retailing puzzle goes beyond the three basics of location, assortment and price. We contend that to achieve an “inspirational” shopping experience, a retailer must focus on optimizing and integrating all parts of the puzzle; incorporating convenience, knowledge, assortment, price/value and customer experience.


Convenience


The statement “location is everything in retailing” still holds for some retailers, like gas stations and convenience stores, but location isn’t everything for “inspirational” retailers. We know that many consumers have sense of the distance that they want to travel to make certain types of purchases. However, the power of “inspirational” retailing means consumers will go out of their way to shop.


What’s more important than distance is shoppability, which relates to physical characteristics such as parking, traffic flow within the store, easy check out, and access to alternative sources of shopping, e.g., online and/or catalog.


Simply stated, convenience is the relatively tangible characteristics of shopping that makes it easier for people to buy what they want as quickly as they want.


Knowledge


A growing driver of shoppability is consumer access to information to support their purchase decision. Amazon is an example of a retailer that uses information to support better decision making through editorial reviews, recommended lists, and frequent member emails. Radio Shack has made knowledge a critical driver as described in their tagline “You’ve got questions. We’ve got answers.” Even Wal-Mart, without a large sales staff, now provides scanning devices in different parts of the store for people to check prices on unmarked items. This is a form of knowledge that consumers desire and yet would be inconvenient for them to have to go to a salesperson or a checkout counter.


Assortment


Another factor for consumers is choosing a destination for a given category. For a retailer, it does not mean that one has to have the same level of depth and breadth of assortment in order to be competitive in all categories. Rather retailers should focus on those categories, which will differentiate them from a direct competitor.


For example, Lowe’s decided to become a destination retailer for white goods to better compete with Home Depot. Another success story in using assortment is Sharper Image, which began to face increasing competition in some of its key items across a variety of channels. As a result, they developed exclusive assortments by working with inventors and new product developers, and actually manufacture exclusive items themselves.


This does not mean that you have to manufacture your own items, but it does mean that you need to decide which category or categories of products and services you want to support your “inspirational” value proposition. There are also situations where you might introduce an assortment that is atypical for your format, yet effective in driving traffic. Best Buy, for example, added CDs to their full-range consumer electronics categories to drive traffic.


Some retailers, though, will choose to “create” items or SKUs that are unique to their brand.


Price/Value


Obviously, not all retailers can have the lowest prices. Wal-Mart has captured an extremely competitive low price value proposition reinforced by its targeted, lowest entry price point strategy. For example, in most of the categories in which it competes, it tries to achieve a lower entry price point than any other retailer, sometimes by changing the count on certain items or actually changing the product to achieve the lowest price point. Many retailers are concerned that they need to somehow match Wal-Mart in order to survive in the long-term. However, we believe that they need to develop a value-driven price strategy that reflects their customer experience, yet is still competitive with their direct competitors whether they are supermarket chains or other club stores in their format.


Customer Experience


The most important driver of “inspirational” retailing is the customer experience. Obviously, the other drivers of “inspirational” retailing contribute significantly to an inspirational customer experience. If the store is shoppable, has a good price value, the right assortment, knowledge, and great service, they all can add up to a very powerful customer experience. Wal-Mart, for example, adds up to a one-stop family shopping experience for budget-conscious families. The Target experience is for fashion-conscious families seeking stylish and trendy items with looks and labels that instill confidence.


However, retailers such as Best Buy, Home Depot, Sharper Image and even e-Bay provide an inspirational experience that’s more than a simple confirmation of price-value, convenience, assortment, and knowledge. They, in fact, succeed in driving traffic among consumers who just want to go to that store even if they have no specific purchase in mind. Home Depot, for example, provides ideas and solutions to want-to-be experts. In essence it’s the inspirational experience that makes the difference. This is supported by experienced salespeople as well as DIY-learning instruction seminars. Best Buy actually promotes the idea of male adolescents coming to the store — for the fun of playing with the devices. E-bay has successfully gone beyond the appeal of an inexpensive purchase and enables people to actually start their own home businesses on e-bay. Some marketers have even gone to the extent of providing a relatively non-commercial environment to promote their goods and services. For example, Crayola has created a creative environment store where you can go and actually create and play with various Crayola products. They are available for sale, but it is a secondary focus. Virgin MegaStore has taken customer experience one step further by creating in-store excitement and fun for entertainment buffs by providing in-store concerts and CD signings, as well as video-game kiosks.


The Future


It is difficult to quantify the relative importance of each of these five retailing factors but it will be important in the future for retailers to focus on all of these in a way that does make it a truly inspirational experience for consumers.



John Ruf is a partner with the New England Consulting Group (NECG), a marketing strategy consulting firm serving manufacturers and retailers. John and NECG, have consulted
for retailers ranging from Sears to Albertsons to Office Depot. John, also, recently completed a global study of retailing trends and the data management needs of retailers.


For further information, John can be contacted at JJR@thenecg.com or by phone at 203-226-9200.


Moderator’s Comment: What are your thoughts on the “inspirational retailing” theory put forth in this article?


Reading this, we found ourselves counting the number of grocery stores we pass on our way to shop at Trader Joe’s and Wegman’s.
George Anderson – Moderator

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